Transaction work flow for the system of Straight Through Processing in the Indian Securities Market and standardisation of the messaging formats - SEBI - DNPD/Cir-25/04

CHIEF GENERAL MANAGER DERIVATIVES AND NEW PRODUCTS DEPARTMENT DNPD/Cir-25/04 June 10, 2004 All Exchanges, Clearing Corporation / Clearing House, STP Centralised Hub Depositories, Custodians, AMFI and STP service providers Sub: Transaction work flow for the system of Straight Through Processing in the Indian Securities Market and standardisation of the messaging formats Dear Sir, 1. This is in continuation to our previous Circular No. DNPD/Cir-9/04 dated February 3, 2004 Circular No. SEBI/MRD/SE/Cir-11/2004 dated February 25, 2004 on the issuance of electronic contract notes as a legal document like the physical contract note for the equity and debt segments, circular No. DNPD/Cir-22/2004 dated April 1, 2004 mandating the use of the Straight Through Processing (STP) system for all institutional trades w.e.f. July 1, 2004, circular No. DNPD/Cir-23/04 dated April 27, 2004 prescribing the detailed system flow of the STP system and Circular No. DNPD/Cir-24/04, dated May 26, 2004 prescribing the SEBI (STP centralised hub and STP service providers) Guidelines, 2004. 2. SEBI in consultation with the STP centralised hub, STP service providers and the STP users has prescribed the transaction work flow for the STP system. All institutional investors shall follow the following transaction work flow on a mandatory basis from July 1, 2004: a. A contract note in electronic form in the prescribed format (IFN 515 messaging format) shall be issued by the broker and sent to the custodian and/or the institutional investor. b. In case the contract note is processed directly by the institutional investor, the institutional investor shall send the trade confirmation of acceptance or rejection of the contract note to the broker by using the IFN 598 messaging format. The custodian shall also send the confirmation of acceptance or rejection of such contract note to the broker using the messaging standard IFN 548. c. In case the contract note is processed by the custodian on behalf of the institutional investor, the custodian shall send the confirmation of acceptance or rejection of the contract note to the broker by using the IFN 548 messaging format. d. The institutional investor shall send settlement instructions to its custodian in IFN 540 to IFN 543 messaging formats to the custodian for the following trade types: i. IFN 540: settlement instruction for a clearing house buy trade ii. IFN 541: settlement instruction for a delivery-v/s-payment (DVP) buy trade iii. IFN 542: settlement instruction for a clearing house sell trade iv. IFN 543: settlement instruction for a delivery-v/s-payment (DVP) sell trade e. The custodian shall confirm/reject the execution of the settlement instructions to the institutional investor in IFN 544 to IFN 547 messaging formats in the following manner: i. IFN 544: confirmation/rejection of an instruction received in messaging format IFN 540 ii. IFN 545: confirmation/rejection of an instruction received in messaging format IFN 541 iii. IFN 546: confirmation/rejection of an instruction received in messaging format IFN 542 iv. IFN 547: confirmation/rejection of an instruction received in messaging format IFN 543 f. It is clarified that if a message (for the activities mentioned above) is sent using the STP centralised hub framework from one user to another user, then the confirmation/rejection for such a message shall also be sent using the STP centralised hub framework. 3. SEBI vide circular No. DNPD/Cir-9/04 dated February 3, 2004 had prescribed the format of the contract note in electronic form. After deliberation with the STP service providers and the market participants the following changes are incorporated to the existing messaging format (IFN 515): a. The mandatory requirement of mentioning the relevant bye-laws/rules/regulations of the exchange subject to which the said contract note is being issued on each contract note stands modified in the following manner: i. The requirement is not mandatory but optional ii. The broker shall ensure that the relevant bye-laws/rules/regulations of the exchange subject to which the contract note is being issued, is mentioned in the broker-client agreement and the tripartite agreement between the broker-sub-broker-client agreement (if applicable). iii. The existing field for the above provision shall not be deleted and may be used as a free text field for one constituent to communicate remarks (if any) to another constituent. b. The clause of payment of consolidated stamp duty for each contract note shall be mentioned in the broker-client agreement and the tripartite agreement between the broker-sub-broker-client agreement (if applicable). The said clause may be stated in the free text field (as mentioned in point 3 (a)(iii) of each contract note. c. In the field market type (field 70E) a category of TT i.e. trade for trade and OT i.e. Others shall be added to represent the supplementary categories of market types. d. The order time was prescribed as a mandatory field in the contract note. The order time shall now be included in the optional fields. e. There are certain securities which are not de-materalised and hence do not have an ISIN code. For such securities (where ISIN number is not available) the STP users would be required to input the security code given by the exchange in the ISIN number field. In case the number length of the exchange scrip code is shorter than the prescribed field length of 12 characters, the code shall be prefixed with zeros. f. In order to maintain a complete audit trail, it is clarified that in case an electronic contract note is rejected, the custodian (in messaging format IFN 548) or the fund manager (in messaging format IFN 598) shall be required to send a rejection message to the broker. Only on receipt of the rejection message, the broker shall cancel the rejected contract note and issue a fresh contract note bearing a new number. g. In order to bring in standardisation in the input of the identification codes in the prescribed messaging standards, it is clarified that the following codes shall be used by the various entities: i. Brokers: SEBI registration number (until MAPIN ID is available for every broker) ii. Mutual Funds and schemes of Mutual Funds: SEBI registration number for Mutual Funds and Unique client code issued by the exchanges for schemes (until MAPIN ID is available for each scheme of a mutual fund) iii. FIIs and sub-accounts: SEBI registration number for FII and Unique client code issued by the exchanges for sub-account (until MAPIN ID is available for each FII and their sub-accounts) iv. Custodians: SEBI registration number (until MAPIN ID is available for every custodian) v. STP service providers and STP centralised hub: MAPIN ID vi. Depositories and exchanges/clearing house/clearing corporation: MAPIN ID. vii. Other Institutional Investors like financial institutions, banks etc.: Unique client code issued by the exchanges (until MAPIN ID is available for each Institutional Investor) h. All market participants shall issue the electronic contract note for institutional trades in the modified format enclosed in Annexure I. 4. The prescribed messaging formats for IFN 540, IFN 541, IFN 542, IFN 543, IFN 544, IFN 545, IFN 546, IFN 547, IFN 548 and IFN 598 are enclosed in Annexure II. After consultation with the market participants and confirming their preparedness, it has been decided to make these messaging formats (in addition to IFN 515) mandatory for all institutional trades w.e.f. July 1, 2004. 5. It is reiterated that the STP system shall be initially mandatory for all institutional trades in the equity segment w.e.f. July 1, 2004. 6. The standard terms of contract as are required to be mentioned in the Contract Notes as per the Bye-laws and Regulations of exchanges, which are not contained in electronic contract notes, shall be incorporated in the Client Broker Agreement or where applicable, the Tripartite Agreement between the stock broker, sub-broker and the client. The stamp duty in respect of the electronic contract notes shall be paid by the broker. 7. This circular is being issued in exercise of powers conferred by section 11(1) of the Securities and Exchange Board of India Act, 1992, read with section 10 of the Securities Contracts (Regulation) Act 1956, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. Yours sincerely, N. PARAKH Encl. 1. Messaging Format for IFN 515 (modified format) 2. Messaging Format for IFN 540 3. Messaging Format for IFN 541 4. Messaging Format for IFN 542 5. Messaging Format for IFN 543 6. Messaging Format for IFN 544 7. Messaging Format for IFN 545 8. Messaging Format for IFN 546 9. Messaging Format for IFN 547 10. Messaging Format for IFN 548 (C to B) 11. Messaging Format for IFN 548 (C to I) 12. Messaging Format for IFN 598 (I to B)